What is Stokes thinking? It’s the question that has rival media chairmen scratching their heads as
Kerry Stokes
’s
Seven West Media
resists early advances by the Abbott government to relax media ownership rules and open the gates to a potential merger and acquisitions fiesta later this year.

The Perth billionaire’s Seven stands alone, poker-faced, among Australia’s big content-producing media companies. It has warned the Coalition to be “extremely careful" as it considers scrapping the long-standing cross-media ownership restrictions.

Key to Stokes’s reticence, speculate rivals privately, is that he does not want to see a stronger
News Corp
,
Fairfax Media
(owner of The Australian Financial Review) or
Nine Entertainment Co
, more of which later.

But Seven’s rivals are also conscious of the 73-year-old’s reputation for counter-intuition and playing by his own rules. They wonder whether he has a secret plot, perhaps to increase his media reach and power, that may not include traditional media.

AFR
AFR

In a game driven (inevitably) by ­self-interest on all sides, Seven’s rivals Nine, Ten Network Holdings, News, Fairfax and the regional TV networks have said they would back the axing of the two key rules that severely restrict media consolidation. They argue the internet has changed the game, fostering unregulated competition and making such restrictions irrelevant. It’s an argument that Communications Minister
Malcolm Turnbull
, who has yet to make any decisions, calls “cogent". Turnbull has raised the ­prospect that the rules could be torn up and any deals tested on a case-by-case basis by the Australian Competition and ­Consumer Commission.

But Seven, which owns the No. 1 television network, Pacific Magazines and the West Australian newspapers, is playing hard to get. Its CEO
Tim Worner
agrees the web has been a disruptive force but wants to see the details and is worried about ultimate market power. He says “traditional media are still the most influential sources of news and entertainment" and suggests the public’s ability to watch sport on free-to-air television could be compromised if certain mergers were allowed.

Seven’s recalcitrance creates a headache for Turnbull and Prime Minister
Tony Abbott
, who has made clear he does not want to pick “unnecessary fights" with media owners. Turnbull told the Financial Review on Sunday any reforms were “a lot easier if the parties are in broad agreement". They also have to satisfy a Senate in which they do not have control and must be concerned about Labor and Greens senators blocking any changes that could allow
Rupert Murdoch
’s News Corp to expand its empire.

Abbott has said the government will take a cautious approach to the reforms, in a deliberate effort to avoid a repeat of Labor’s hasty and ultimately unsuccessful push for change last March.

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Company Profile

As both men seek an accord between fierce media rivals and powerful shareholders including billionaires Stokes, Murdoch,
Gina Rinehart
,
James Packer
and
Bruce ­Gordon
, the staking has truly begun.

Two out of three

The friction is focused on two long-standing rules. Both were put in place before the mass-market internet made it possible to access multiple, diverse sources of alternative media content to traditional television, radio and print newspapers.

The first and most controversial is the “two out of three" rule. It prevents anyone from owning a commercial TV broadcasting licence, a commercial radio licence and a newspaper in the same city. That rule could stymie potential deals such as a takeover of the struggling Ten network by Rupert ­Murdoch’s News Corp, which owns newspapers including The Australian and The Daily Telegraph, and 50 per cent of Australia’s most profitable media company Foxtel, the monopoly provider of pay-television services over cable and satellite.

News and Ten share a common director in Ten chairman
Lachlan Murdoch
, who also owns 100 per cent of radio ­company Nova Entertainment. News Corp has consistently denied it is interested in Ten. It is also thought Mr Murdoch jnr is unconvinced of the merits of rolling Nova into News but that he could potentially be open to high offers from Nine or Seven.

News insists that the cross-media ownership rules would not prevent News acquiring Ten. In November, the Australian Communications and Media Authority indicated it would not object to a takeover offer of Ten by News Corp. However, it said it would examine the Australian media assets owned by the Murdoch family. And in October 2012, ACCC chairman
Rod Sims
signalled that News Corp ­Australia would struggle to get approval for any expansion into free-to-air TV.

The two-out-three rule could also prevent a potential merger between Fairfax, which owns radio and print assets, and Nine – or Seven for that matter. Either deal would ­create a huge news organisation to go up against News Corp, Foxtel and Ten in terms of scale and would include Fairfax’s most highly prized asset, the real estate group Domain.

Nine chief executive
David Gyngell
said this month that Nine would “run the ruler" over radio and outdoor media assets and would even consider a merger with Fairfax if it was less reliant on print revenues than it currently is.

The reach rule

The second rule under the spotlight is the reach rule, which bans a commercial TV licence holder from reaching more than 75 per cent of the national population. This rule prevents the metropolitan broadcasters Seven, Nine and Ten from being able to buy out their regional affiliates, which are, respectively, Prime Media, Bruce Gordon’s WIN Corp and Southern Cross Media.

Gyngell has lobbied hard for this rule to go, and tested the Labor government’s willingness to drop it in late 2012 when Nine entered abortive merger talks with Southern Cross Media, a move which would have given Nine radio assets and made it bigger than Seven. News of the talks split the industry, with Seven and Ten, Southern Cross’s metropolitan affiliate, warning MPs against scrapping the reach rule.

Ten has now come out in favour of scrapping the rule but Seven’s Worner insists such a change is “not urgent and not as simple as it seems". Worner also says he cannot see the same synergies that other networks can from acquiring a regional network.

One senior fund manager believes Seven’s reticence on the reach rule could be a ploy to put a lid on the share price of Prime before making a move. In October, Seven signed a new six-year affiliation deal with Prime, whose biggest shareholder, Paul Ramsay, sold out earlier this month.

Nine and Ten renegotiated shorter affiliate deals with their regional partners, Bruce ­Gordon’s WIN Corp and Southern Cross Media, in June and July. Those deals could delay any attempts by the major networks to buy their rivals’ affiliates.

In September, Nine struck a “first look" agreement with WIN that could make it easier to buy WIN’s regional television stations if the reach rule goes.

If it does, along with the two-out-of-three rule, it really will be game on in media land.